(a) The highly anticipated Initial Public Offer (IPO) of Life Insurance Corporation of India (LIC), emerged as the largest turnout in terms of public participation. Identify the type of capital market LIC of India has approached. (b) Distinguish between the two types of capital markets. (c) Capital markets are an important source of raising finance for entrepreneurs. Justify the statement.

Question

Accepted Answer

(a) LIC of India has approached the **Primary Market**. An IPO (Initial Public Offer) is a method of raising funds through the primary market, which involves raising funds directly from the public through the issue of a prospectus.

(b) The two types of capital markets are:

| **Primary Market** | **Secondary Market** |
|---|---|
| Deals with the issue of new securities for the first time | Deals with the buying and selling of existing (second-hand) securities |
| Also known as New Issues Market | Also known as Old Securities Market or Stock Exchange |
| Facilitates transfer of resources from savers to entrepreneurs | Provides liquidity to investments by enabling investors to sell their holdings |
| Companies raise capital directly from investors | Investors trade among themselves |
| Transactions occur between company and investors | Transactions occur between investors |

(c) Capital markets are an important source of raising finance for entrepreneurs because:

1. **Mobilize Financial Resources on a Nationwide Scale:** Capital markets have the ability to pool savings from millions of individuals across the country and channel them into productive investments.

2. **Secure Required Foreign Capital and Know-how:** Capital markets help in securing foreign capital and technology to promote economic growth at a faster rate.

3. **Ensure Effective Allocation of Resources:** Capital markets ensure that mobilized financial resources are directed either to projects capable of the highest yield or to underdeveloped priority areas where there is an urgent need to promote balanced and diversified industrialization.